Record forecast for Fonterra's payout

LAURA WALTERS
Last updated 07:40 05/12/2013

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Dairy farmers can expect their payout from Fonterra to reach a record $8.40 per kilogram of milksolids on the back of strong demand for New Zealand dairy products, Westpac says.

The GlobalDairyTrade's trade- weighted price index rose 3.9 per cent yesterday , compared with the last sale. The average winning price was US$4973 (NZ$6029) a tonne, up from US$4805 a tonne at the last auction a fortnight ago.

Maximum supply, the measure of how much product was for sale, dropped from 54,416 tonnes to 52,697t. A total of 51,944t was sold.

Westpac senior economist Anne Boniface said the apparent strength in demand, given such high prices and strong production growth in New Zealand, had been impressive. Westpac had "nudged up" its milk-price forecast for the season to a record high of $8.40 per kg of milksolids, from $8.30 now.

She expected Fonterra to give an update on its payout forecast next week.

Fonterra raised its payout forecast to $8.30 in September, citing strong international dairy prices, particularly for whole milk powder driven by demand from Asia, and especially China.

But, prices were likely to fall next year, as global dairy supply increased in response to the "exceptionally high" prices on offer, Boniface said. Nationally production was on track to increase more than 8 per cent for the year.

However, European dairy production had risen sharply during the last few months. United States production had also been running ahead of last year's.

Milk production in the top 23 US states rose 1.2 per cent in October, compared to the same month last year, she said. The number of dairy cattle in the US was also up on last year, with a lift in milk product per cow meaning higher margins.

These factors meant US production was likely to increase further next year.

OM Financial senior foreign exchange and derivatives adviser Stuart Ive said while the latest lift in dairy prices was not necessarily the start of a trend, price spikes were expected to continue. Higher prices were good for farmers, as the rises feed back into payouts. Fairfax NZ

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